Hong Kong: Cost Of Non-Compliance

Failure to comply with company law in Hong Kong can be
very expensive for businesses.

In a highly dynamic business and regulatory environment such as
Hong Kong, it is challenging for business owners to remain fully
aware of the latest legal requirements. Maintaining a skilled,
high-quality compliance team in-house is costly and ignorance of
the law is no defense under our legal system. It is therefore
common for business owners in this jurisdiction to elect to
outsource their company secretarial compliance function with the
aim of mitigating the risk of non-compliance.

To lower the threshold for prosecuting contravention by
officers, Hong Kong's Companies Ordinance (Cap 622) (New CO),
implemented on 3 March 2014, introduced a new definition of
'responsible person'. A responsible person is an officer of
a company − which includes directors, persons performing
managerial functions and the company secretary − who
authorises, permits or participates in the contravention or
failure. The defaulting company and its responsible person is
exposed to prosecution and, if convicted, fines.

To ensure timely compliance by companies and their officers with
their obligations under the Companies Ordinance, the Companies
Registry (CR) issues reminders and instigates prosecution actions
as and when appropriate.

According to the CR, the majority of the summonses issued in the
past six years are for failing to deliver, or being late to
deliver, statutory returns within the prescribed time periods. The
total fines imposed for the first seven months of 2016 amount to
HK$7,382,780.

If a person upon whom a summons is served fails to appear in
court without a good reason, they may be in contempt of court and
punished accordingly. If the defendant company is absent from the
hearing, the prosecutor may take appropriate steps to continue with
the proceedings if the situation warrants it.

Instead of instituting prosecution proceedings against
defaulting companies, the Registrar of Companies is empowered under
the New CO to exercise their discretion in compounding certain
simple and straightforward filing offences − such as
prosecution for failure to display a company's registered name,
provision of false information, failure to hold annual general
meetings or failure to lay accounts before members. A new
inspection unit in the enforcement section of the CR has been set
up to step up the enforcement efforts.

Corporate secretarial compliance

Set out below are certain corporate secretarial compliance
issues applicable to private limited companies in Hong Kong which
may help you better understand the relevant legal requirements:

Statutory registers

Every company is required to keep the following statutory
registers (these can be in hard copy or electronic form) at its
registered office or at another place within the Hong Kong
territory:

Register of members

Register of directors

Register of company secretaries

Register of charges

Register of debenture holders (if the
company issues a series of debentures, or any debenture stock, that
are not transferable by delivery).

The CR should be notified of any change in location of keeping
these registers in their prescribed form within 15 days of each
change.

Annual return

A local private company must, in respect of every year, deliver
its annual return to the Registrar of Companies for registration.
This must be done within 42 days of the anniversary of the date of
the company's incorporation and incurs an annual registration
fee of HK$105. A substantially higher registration fee, ranging
from HK$870 to HK$3,480, is payable for late delivery.

In addition to the payment of the higher registration fee, the
company and each of its responsible persons are also liable to
prosecution and, if convicted, default fines. The maximum penalty
is HK$50,000 for each breach and, in the case of a continuing
offence, a daily default fine of HK$1,000.

For persistent non-compliance, the Registrar of Companies may
consider taking strike-off action in appropriate cases.

AGM and AFS

Under the New CO, a local private limited company that is not a
subsidiary of a public company must hold an annual general meeting
(AGM) within nine months (or such longer period directed by the
court) after the end of its financial year end date. This is except
for in the following circumstances:

Resolutions to be passed at the AGM
are approved by written resolutions and copies of the documents
required to be laid thereat are provided to each member on or
before the circulation date of the written resolutions

The company has only one member

All members approve by resolution to
dispense with the holding of AGMs

The company has declared dormancy
pursuant to the Companies Ordinance (dormant company).

A time interval between each AGM of not more than 15 months
(which is a requirement under the predecessor Companies Ordinance)
is no longer applicable under the New CO.

Generally speaking, a company's directors must at the AGM,
in respect of each financial year (consisting of a period of 12
months), lay before the company a copy of its audited financial
statements (AFS). In this connection and except for a dormant
company, all companies are required to prepare AFS (either company
level or consolidated financial statements) even if they do not
have any transactions during a financial year or have never
commenced business or operations since the date of
incorporation.

Only certified public accountants holding a valid practicing
certificate issued by the Hong Kong Institute of Certified Public
Accountants are lawfully qualified to provide auditing services to
Hong Kong incorporated companies.

At least one director

To increase transparency, the New CO requires every private
company to have at least one director who is a natural person (i.e.
an individual). The CR already issued reminders to those Hong Kong
companies which remain non-compliant with this requirement. For
continued non-compliance, the Registrar may issue direction to the
relevant company. Failure to comply with the direction may result
in the company and all of its responsible persons each being liable
for a fine of HK$100,000 and for a continuing offence, a further
fine of HK$2,000 per day.

In Hong Kong, directors are not subject to any nationality or
residency requirement.

Share capital

There is a deeming provision in the New CO requiring any amount
standing to the credit of the company's share premium account
and capital redemption reserve as of 3 March 2014 to become part of
the company's share capital. Capital reserves or other reserves
not of the above nature are not covered under the deeming provision
and should not be amalgamated into paid up share capital.

Company name

There is no name reservation mechanism in Hong Kong and the
registration of company names is subject to certain restrictions.
Generally speaking, a company name will not be registered if:

It is the same as a name appearing in
the Index of Company Names kept by the Registrar of Companies

It is the same as that of a body
corporate incorporated or established under an Ordinance

In the opinion of the Registrar, its
use would constitute a criminal offence

In the opinion of the Registrar, it
is offensive or otherwise contrary to the public interest.

The Registrar may direct a company to change its name under the
provisions of the Companies Ordinance. If the company fails to
comply with the direction, the company and all its responsible
persons commit an offence. Each is liable to a fine and, for
continuing offence, a further daily default fine.

The Registrar may also replace a company name by the
company's registration number if the company fails to comply
with the Registrar's direction to change its name.

Cost of non-compliance

Compliance may be seen as expensive but non-compliance in Hong
Kong can cost businesses even more − and sometimes cannot be
rectified without leave of the court. Engagement of experienced and
qualified professionals to manage company secretarial matters and
advise on best practice is therefore recommended.

Confidentiality of corporate documents and information is one of
the key attractions of incorporating a company in the BVI. A
company search of the BVI Registrar of Corporate Affairs will only
disclose certain information and documents.

A recently reported case in Dubai whereby an individual was arrested and imprisoned for fundraising for charitable donations without having approval to do so will have set alarm bells ringing...

Some comments from our readers…“The articles are extremely timely and highly applicable”“I often find critical information not available elsewhere”“As in-house counsel, Mondaq’s service is of great value”

This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).

Email Address

Company Name

Password

Confirm Password

Mondaq Topics -- Select your Interests

Accounting

Anti-trust

Commercial

Consumer

Criminal

Employment

Energy

Environment

Family

Finance

Government

Healthcare

Immigration

Insolvency

Insurance

International

IP

Law Performance

Law Practice

Litigation

Media & IT

Privacy

Real Estate

Strategy

Tax

Technology

Transport

Wealth Mgt

Regions

Africa

Asia

Asia Pacific

Australasia

Canada

Caribbean

Europe

European Union

Latin America

Middle East

U.K.

United States

Worldwide Updates

Check to state you have read and agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you
are granted a non-exclusive, revocable license to access the Website under its
terms and conditions of use. Your use of the Website constitutes your agreement
to the following terms and conditions of use. Mondaq Ltd may terminate your use
of the Website if you are in breach of these terms and conditions or if Mondaq
Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to
read the full text of the content and articles available (the Content). You may
not modify, publish, transmit, transfer or sell, reproduce, create derivative
works from, distribute, perform, link, display, or in any way exploit any of the
Content, in whole or in part, except as expressly permitted in these terms &
conditions or with the prior written consent of Mondaq Ltd. You may not use
electronic or other means to extract details or information about Mondaq.com’s
content, users or contributors in order to offer them any services or products
which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the
suitability of the information contained in the documents and related graphics
published on this server for any purpose. All such documents and related
graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or
its respective suppliers hereby disclaim all warranties and conditions with
regard to this information, including all implied warranties and conditions of
merchantability, fitness for a particular purpose, title and non-infringement.
In no event shall Mondaq Ltd and/or its respective suppliers be liable for any
special, indirect or consequential damages or any damages whatsoever resulting
from loss of use, data or profits, whether in an action of contract, negligence
or other tortious action, arising out of or in connection with the use or
performance of information available from this server.

The documents and related graphics published on this server could include
technical inaccuracies or typographical errors. Changes are periodically added
to the information herein. Mondaq Ltd and/or its respective suppliers may make
improvements and/or changes in the product(s) and/or the program(s) described
herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally
identifies you, including what sort of information you are interested in, for
three primary purposes:

To allow you to personalize the Mondaq websites you are visiting.

To enable features such as password reminder, newsletter alerts, email a
colleague, and linking from Mondaq (and its affiliate sites) to your website.

Mondaq (and its affiliate sites) do not sell or provide your details to third
parties other than information providers. The reason we provide our information
providers with this information is so that they can measure the response their
articles are receiving and provide you with information about their products and
services.

If you do not want us to provide your name and email address you may opt out
by clicking here .

If you do not wish to receive any future announcements of products and
services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to
view the free information on the site. We also collect information from our
users at several different points on the websites: this is so that we can
customise the sites according to individual usage, provide 'session-aware'
functionality, and ensure that content is acquired and developed appropriately.
This gives us an overall picture of our user profiles, which in turn shows to
our Editorial Contributors the type of person they are reaching by posting
articles on Mondaq (and its affiliate sites) – meaning more free content for
registered users.

We are only able to provide the material on the Mondaq (and its affiliate
sites) site free to site visitors because we can pass on information about the
pages that users are viewing and the personal information users provide to us
(e.g. email addresses) to reputable contributing firms such as law firms who
author those pages. We do not sell or rent information to anyone else other than
the authors of those pages, who may change from time to time. Should you wish us
not to disclose your details to any of these parties, please tick the box above
or tick the box marked "Opt out of Registration Information Disclosure" on the
Your Profile page. We and our author organisations may only contact you via
email or other means if you allow us to do so. Users can opt out of contact when
they register on the site, or send an email to unsubscribe@mondaq.com with “no
disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate
registration form. This is a personalised service where users choose regions and
topics of interest and we send it only to those users who have requested it.
Users can stop receiving these Alerts by going to the Mondaq News Alerts page
and deselecting all interest areas. In the same way users can amend their
personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an
identifying user number. The cookies do not contain any personal information
about users. We use the cookie so users do not have to log in every time they
use the service and the cookie will automatically expire if you do not visit the
Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to
personalise a user's experience of the site (for example to show information
specific to a user's region). As the Mondaq sites are fully personalised and
cookies are essential to its core technology the site will function
unpredictably with browsers that do not support cookies - or where cookies are
disabled (in these circumstances we advise you to attempt to locate the
information you require elsewhere on the web). However if you are concerned
about the presence of a Mondaq cookie on your machine you can also choose to
expire the cookie immediately (remove it) by selecting the 'Log Off' menu option
as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example,
advertisers). However, we have no access to or control over these cookies and we
are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement,
and gather broad demographic information for aggregate use. IP addresses are not
linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or
its affiliate sites) are not responsible for the privacy practices of such other
sites. We encourage our users to be aware when they leave our site and to read
the privacy statements of these third party sites. This privacy statement
applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or
contests. Participation in these surveys or contests is completely voluntary and
the user therefore has a choice whether or not to disclose any information
requested. Information requested may include contact information (such as name
and delivery address), and demographic information (such as postcode, age
level). Contact information will be used to notify the winners and award prizes.
Survey information will be used for purposes of monitoring or improving the
functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our
site, we ask them for the friend’s name and email address. Mondaq stores this
information and may contact the friend to invite them to register with Mondaq,
but they will not be contacted more than once. The friend may contact Mondaq to
request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’
information. When users submit sensitive information via the website, your
information is protected using firewalls and other security technology. If you
have any questions about the security at our website, you can send an email to
webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode),
or if a user no longer desires our service, we will endeavour to provide a way
to correct, update or remove that user’s personal data provided to us. This can
usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will
post those changes on our site so our users are always aware of what information
we collect, how we use it, and under what circumstances, if any, we disclose it.
If at any point we decide to use personally identifiable information in a manner
different from that stated at the time it was collected, we will notify users by
way of an email. Users will have a choice as to whether or not we use their
information in this different manner. We will use information in accordance with
the privacy policy under which the information was collected.

How to contact Mondaq

If for some reason you believe Mondaq Ltd. has not adhered to these
principles, please notify us by e-mail at problems@mondaq.com and we will use
commercially reasonable efforts to determine and correct the problem promptly.